Some progressives, Paul Krugman chief among them, want to draw a line in the sand on the CFPA, accepting only a fully independent agency. This is understandable after the year-long health care debate, in which progressives were, at the end of the day, forced to accept a severely diluted and distasteful compromise bill. Nevertheless, I think refusing to compromise on the CFPA is a huge mistake. It's worth examining the severe flaws in the arguments for why progressives should refuse to compromise on the CFPA. First, here's Krugman:

There are times when even a highly imperfect reform is much better than nothing; this is very much the case for health care. But financial reform is different. An imperfect health care bill can be revised in the light of experience, and if Democrats pass the current plan there will be steady pressure to make it better. A weak financial reform, by contrast, wouldn’t be tested until the next big crisis. All it would do is create a false sense of security and a fig leaf for politicians opposed to any serious action — then fail in the clinch.

Better, then, to take a stand, and put the enemies of reform on the spot.
...
In summary, then, it’s time to draw a line in the sand. No reform, coupled with a campaign to name and shame the people responsible, is better than a cosmetic reform that just covers up failure to act.

First of all, Krugman is simply wrong to suggest that a weak CFPA "wouldn't be tested until the next big crisis." This argument applies to crisis response measures, like the resolution authority or Section 13(3) actions, but it does not apply to the CFPA. The CFPA is prophylactic — it's not part of the crisis response measures.

If we want change, someone has to be willing to stand up for it. If you want to win a negotiation, you have to be willing to walk away. If you can’t do that, you will get rolled on every issue.

The argument that "you have to be willing to walk away" doesn't apply to all negotiations. Specifically, it only applies if the Republicans would consider a deal on the CFPA preferable to no CFPA at all. That is most assuredly not the case here. Walking away isn't something we can threaten the Republicans with, because no CFPA is exactly what they want! Our best chance is to find a Republican who, despite having a preference for no CFPA, is nevertheless willing to deal. That Republican, it appears, is Bob Corker. So now we have to find the strongest version of the CFPA that can get 60 votes, and go with it. Look, I wish there were 80 Democrats in the Senate, and we could pass whatever we wanted. But there aren't 80 Democrats in the Senate, and there's no sense pretending that there are.

Finally, both Krugman and Kwak are seriously overestimating the effect of "a campaign to name and shame the people responsible" for killing an independent CFPA. It's always tempting to think that we can force legislators to record "no" votes on a particular issue and then use that against them in the next election, but this is an extremely high-risk strategy, for two reasons. First, it's simply impossible to predict what the important issues in the next election will be. Remember when the defining issue of the 2008 election was going to be immigration? Or in the primaries, when everyone thought the key issue in the general election was going to be how the candidates voted on the Iraq War? Unfortunately, voters have very short attention spans, and the key issue in a given election — to the extent there is one at all — usually ends up being whatever issue the media happens to be hyperventalating about in October.

The other reason a "campaign to name and shame" CFPA opponents is a mistake is that even if it does help to elect more CFPA-friendly legislators, who's to say that an independent CFPA will come up for a vote again during that Congress? The leadership has to choose what issues they want to spend their political capital on in a given Congress, and they're usually not keen on spending political capital on a fight that they just fought in the previous Congress. That's why, for example, you don't see immigration, Social Security, or comprehensive education reform on the agenda for this Congress. It's also why health care took 15 years to come up again after Clinton failed to pass a health care bill in '94. For better or worse, the CFPA's moment is now. If we don't pass some version of the CFPA now, it'll be 10 years before we get another bite at the apple.

The virtues of passing a non-independent CFPA now are that (1) even a non-independent CFPA will provide some protection to consumers (whereas no CFPA will help consumers not a whit); and (2) it's much easier to strengthen an already-existing agency than it is to create a whole new agency. Measures to strengthen a CFPA can be inserted into larger legislative packages in a way that measures to create a whole new independent CFPA cannot. Also, strengthening an existing agency is a convenient and politically acceptable response when scandals inevitably crop up. If there's some scandal involving, say, a mortgage broker that turned out to be little more than a Ponzi scheme, then it's much easier for politicians to say, "Well, we're going to make sure the CFPA has the authority to address that," than it is for politicians to use an isolated scandal to create an independent CFPA with powers that go well beyong the scandal they're supposedly responding to.

So yes, we should be willing to compromise on the CFPA. And if a Fed-housed, self-funded CFPA is the compromise Corker and Dodd are offering, I think we should take it in a heartbeat.

I'd be very much opposed to a carve-out for payday lenders, but I also have a very hard time believing it'll be in the bill. Sure, Corker is from Tennessee, which is home to some big payday lenders, but these stories sound to me like they're coming from other Senators' staffers -- who are just speculating -- rather than Corker or Dodd's offices. (My initial reaction was that the story came from Shelby or some other Republican, in an attempt to start stirring up Democratic opposition to any compromise bill that Dodd and Corker produce.)

It's possible that Dodd could let Corker put a payday lender carve-out in the discussion draft, just so Corker can appease the payday lenders in his state, and then have the carve-out killed in markup. But I really don't think it's a serious option. Corker is independently wealthy, so it's not like he relies on campaign contributions from payday lenders or anything.

So I'm skeptical that we'll actually see a carve-out for payday lenders. And if we do, I'm pretty confident that it'll be killed in markup.

Possibly of which Dodd can let Corker put the Diablo III itemspay day advance financial institution carve-out inside the debate draft, simply so Corker could pacify the particular payday lenders in their state, and after that contain the carve-out slain inside markup. On the other hand really don't believe it's really a significant choice. Corker is actually individually affluent, so it will be not like this individual relies upon planDiablo 3 Gold kaufen contributions by payday lenders as well as nearly anything.

About Me

I'm a finance lawyer in New York. I used to focus on derivatives and structured finance (you know, back when there was a structured finance market). I spent the majority of my career at one of the major investment banks. My background is in economics and, unfortunately, politics.

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